REPORTER: Mr. President, in a visit to Texas, in Brownsville, I believe it was, in the Rio Grande Valley, you did observe that the economic recovery was uneven. In that particular area of Texas unemployment was over 14 percent whereas statewide it was the lowest in the country, I believe 5.6 percent. And you made the comment that, however, that man does not live by bread alone. What did you mean by that comment and, if I interpret it correctly, it would be a comment more addressed to the affluent who, who obviously can look beyond just the bread they need to sustain them with their wherewithal.

REAGAN: That had nothing to do with the other thing of talking about their needs or anything. I remember distinctly I was segueing into another subject. I was talking about the things that have been accomplished and that was referring to the revival of patriotism and optimism, the new spirit that we're finding all over America. And it is a wonderful thing to see when you get out there among the people. So that was the only place that that was used. I did avoid, I'm afraid, in my previous answer also, the idea of uneven, yes, there is no way that the recovery is, even across the country, just as in the depths of the recession there were some parts of the country that were worse off but some that didn't even feel the pain of the recession. We're not going to rest, and not going to be happy, until every person in this country who wants a job can have one, until the recovery is complete across the country.

REPORTER: Mr. Mondale, as you can gather fom the question of the President the celebrated war on poverty obviously didn't end the problem of poverty, although it may have dented it. The poor and the homeless and the disadvantaged are still with us. What should the Federal Government's role be to turn back the growth in the number of people living below the poverty level, which is now 35 million in the United States and to help deal with the structural unemployment problems that the President was referring to in an uneven recovery?

MONDALE: No. 1, we've got to get the debt down, to get the interest rates down so the economy will grow and people will be employed. No. 2, we have to work with cities and others to help generate economic growth in those communities - to the Urban Development Action Grant program. I don't mind those enterprise zones, let's try them, but not as a suibstitute for the others. Certainly education and training is crucial. If these young Americans don't have the skills that make them attractive to employees, they're not going to get jobs.

The next thing is to try to get more entrepreneurship in business within the reach of minorities so that these businesses are located in the communities in which they're found. The other thing is we need the business community as well as government heavily involved in these communities to try to get economic growth. There is no question that the poor are worse off. I think the President genuinely believes that they're better off. But the figures show that about 8 million more people are below the poverty line than four years ago. How you can cut school lunches, how you can cut student assistance, how you can cut housing, how you can cut disability benefits, how you can do all of these things and then the people receiving them - for example the disabled who have no alternative, how they're going to do better, I don't know. Now we need a tight budget, but there's no question that this Administration has singled out things that affect the most vulnerable in American life, and they're hurting.

One final point if I might. There's another part of the lopsided economy that we're in today, and that is that these heavy deficits have killed exports and are swamping the nation with cheap imports. We are now $120 billion of imports, 3 million jobs lost and farmers are having their worst year. That's another reason to get the deficit down.

REPORTER: Mr. Mondale, is it possible that the vast majority of Americans who appear to be prosperous have lost interest in the kinds of programs you're discussing to help those less privileged than they are?

MONDALE: I think the American people want to make certain that that dollar is wisely spent. I think they stand for civil rights. I know they're all for education in science and training, which I strongly support.

They want these young people to have a chance to get jobs and the rest. I think the business community wants to get involved. I think they're asking for new and creative ways to try to reach it, and with everyone involved. I think that's part of it.

I think also that the American people want a balanced program that gives us long term growth, so that they're not having to take money that's desperate to themselves and their families and give to someone else. I'm opposed to that, too.

MODERATOR: And now it is time for our rebuttal for this period. Mr. President.

REAGAN: Yes, the connectin that's been made again between the deficit and the interest rates - there is no connection between them. There is a connection between interest rates and inflation.

But I would call to your attention that in 1981, while we were operating still on the Carter-Mondale budget that we inherited, that the interest rates came down from 21 1/2 toward the 12 or 13 figure and while they were coming down, the deficits had started their great increase: they were going up.

Now, if there was a connection, I think that there would be a different parallel between deficit getting larger and interest rates going down.

The interest rates are based on inflation. And right now, I have to tell you, I don't think there is any excuse for the interest rates being as high as they are, because we have brought inflation down so low. I think it can only be that they're anticipating or hope - expecting, not hoping - that maybe we don't have a control of inflation and it's going to go back up again.

Well, it isn't going to go back up. We're going to see that it doesn't.

MODERATOR: Mr. President. Thank you Mr. President. Mr. Mondale?

MONDALE: Mr. President, if I heard you correctly, you said that these deficits don't have anything to do with interest rates. I will grant you that interest rates were too high in 1980 and we can have another debate as to why - energy prices and so on. There's no way of glossing around that. But when these huge deficits went in place in 1981, what's called the real interest rates, the spread between inflation and what a loan costs you, doubled. And that's still the case today, and the result in interest costs that have never been seen before in terms of real charges and it's attributable to the deficit.

Everybody, every economist every businessman believes that. Your one Council of Economic Advisers, Mr. Feldstein in his report, told you that. Every chairman of the Finance and Ways and Means committees, Republican leaders in the Senate and the House, are telling you that. That deficit is ruining the longterm hopes for this economy. It's causing high interest rates, it's ruining us in trade, it's given us the highest small business failure in 50 years, the economy is starting downhill, with housing...

MODERATOR: Thank you Mr. Mondale. You're both very obedient, I have to give you credit for that. We now start our final round of questions. We do want to have time for your rebuttal and we start with Diane: Diane Sawyer.

REPORTER: Since we are reaching the end of the question period, and since in every Presidential campaign the candidates tend to complain that the opposition candidate is not held accountable for what he or she says, let me give you the chance to do that. Mr. Mondale, beginning with you, what do challenging ourselves to get on with the business of dealing with America's problems.

I think in eduation, when he lectured the country about the importance of discipline, I didn't like it at first but I think it helped a little bit. But now we need both that kind of discipline and the resources and the consistent leadership that allows this country to catch up in education and science and training. I like President Reagan and - this is not personal - there are deep differences about our future and that's the basis of my campaign.

REPORTER: Follow up in a similar vein then What remaining question would you most like to see your opponent forced to answer?

MONDALE: Without any doubt, I've stood up and told the American people that $263 billion deficit must come down. And I've done what no candidate for President's ever done, I told you before the election what I'd do.

Mr. Reagan, as you saw tonight, President Reagan takes the position it will disappear by magic. It was once called voodoo economics. I wish the President would say, yes, the C.B.O. is right. Yes we have a $263 billion deficit. This is how I'm going to get it done. Don't talk about gorwth because even though we need growth, that's not helping, it's going to go in the other direction as they've estimted. And give us a plan.

What will you cut? Whose taxes will you raise? Will you finally touch that after Social Security and Medicare and student assistance and the handicapped again, as you did last time?

If you'd just tell us what you're going to do, then the American people could compare my plan for the future with your man. And that's the way it should be. The American people would be in charge.

REPORTER: Mr. President, the most outrageous thing your opponent has said in the debate tonight?

REAGAN: Well, now, I have to start with a smile since his kind words to me. I'll tell you what I think has been the most outrageous thing in political dialogue both in this campaign and the one in '82, and that is the continued discussion and claim that somehow I am the villian who is going to pull the Social Security checks out from those people who are dependent on them. And why I think it is outrageous; first of all, it sin't true. But why it is outrageous is becaus for political advantage, every time they do that, they scar million of senior citizens who are totally dependent on Social Security, have no place to turn, and they have to live and go to bed at night thinking is it true; is someone going to take our check away from us and leave us destitute? And I don't think that that should be a part of political dialogue. Now, to - I just have a minute here?

REPORTER: You have more time. You can keep going.

REAGAN: O.K. All right. Now, Social Security, let's lay it to rest once and for all. I told you never would I do such a thing. But I tell you also now Social Security has nothing to do with the deficit. Social Security is totally funded by the payroll tax levied on employer and employee. If you reduce the outgo of Social Security, that money would not go into the general fund to reduce a deficit. It would go into the Social Security Trust Fund. So Social Security has nothing to do with balancing a budget or erasing or lowering the deficit.

Now, again to get to whether I have - am depending on magic - I think I have talked in straight economic terms about a program of recovery that was - I was told wouldn't work and then after it worked, I was told that lowering taxes would increase infaltion and none of these things happened. It is working and we're going to continue on that same line. As to what we might do and find in further savings cuts, no, we're not going to starve the hungry. But we have 2,478 specific recommendations from a commission of more than 2,000 business people in this country through the Grace Commission, that we're studying right now and we've already implemented 17 percent of them that are recommendations as to how to make Government more efficient, more economic.

REPORTER: And to keep it even. What remaining question would you most like to see your opponent forced to answer?

REAGAN: The deficits are so much of a problem for him now, but that in 1976 when the deficit was $52 billion and everyone was panicking about that, he said, no, that he thought it ought to be bigger because a bigger deficit would stimulate the economy and would help do away with unempolyment. In 1979 he made similar statement, the same effect, that the deficits - there was nothing wrong with having deficits. Remember there was a trillion dollars in debt before we got here. That's got to be paid by our children, and grandchildren too, if we don't do it. And I'm hoping we can start some payments on it before we get through here. That's why I want another four years.

MODERATOR: Well, we have time now, if you'd like to answer the President's question or whatever rebuttal.

MONDALE: Well, we've just finished almost the whole debate and the American people don't have the slightest clue about what President Reagan will do about these deficits. And yet that's the most important single issue of our time. I did support the '76 measure that he told about, because we were in a deep recession and we need some stimulation. But I will say, as a Democrat I was a real piker, Mr. President. In 1979 we ran a ministration seems to run that every morning, and the result is exactly what we see: This economy is starting to run downhill. Housing is off, last report on new purchases is the lowest since 1982, our growth is a little over 3 percent now, many people are predicting a recession, and the flow of imports into this country is swamping the American people. We've got to deal with this problem, and those of us who want to be your President should tell you now what we're going to do so you can make a judgment.

MODERATOR: Thank you very much. We must stop now. I want to give you time for your closing statements. It's indeed time for that from each of you. We will begin with President Reagan. I'm sorry. Mr. Reagan you had your rebuttal and I've just cut you off because our time was going. You have a chance now for rebuttal before you closing statement. Is that correct?

REAGAN: No, I might as well just go with...

MODERATOR: Do you want to wait?

REAGAN: I'm all confused now.

MODERATOR: Technically, you did. I have little voices that come in my ear. You don't get those same voices, I'm not hearing it from here, I'm hearing it from here. You have waived your rebuttal. You can go with your closing statement.

REAGAN: Well, we'll include it in that.

Four years ago in similar circumstances to this I asked you, the American people, a question. I asked, are you better off than you were four years before? The answer to that obviously was no, and as a result I was elected to this office and promised a new beginning. Now, maybe I'm, expected to ask that same question again. I'm not going to because I think that all of you or, not everyone, those people that have - are in those pockets of poverty and haven't caught up, they couldn't answer the way I would want them to. But I think that most of the people in this country would say yes they are better off than they were four years ago.

The question I think should be enlarged. Is America better off than it was four years ago? And I believe the answer to that has to also be yes.

I promised a new beginning. So far it is only a beginning. If the job were finished, I might have thought twice about seeking reelection to this job. But we now have an economy that for the first time - well, let's put it this way, in the first half of 1980 gross national product was down a minus 3.7 percent. The first half of '84 it's up 8.5 percent. Productivity in the first half of 1980 was down a minus percent. Today it is up a plus 4 percent. Personal earnings after taxes per capita have gone up almost $3,000 in these four years. In 1980 or 1979 the person with a fixed income of $8,000 was $500 above the poverty line, and this maybe explains why there are the numbers still in poverty. By 1980 that same person was $500 below the poverty line.

We have restored much of our economy with regard to a business investment. It is higher than it has been since 1949. So there seems to be no shortage of investment capital. We have, as I said, cut the taxes but we have reduced inflation and for two years not it has stayed down there not a double digit but in the range of 4 or below.

We believe that we had also promised that we would make our country more secure. Yes, we have an increase in the defense budget. But back then we had planes that couldn't fly for lack of spare parts or pilots. We had navy vessels that couldn't leave harbor, because of lack of crew or again, lack of spare parts. Today we're well on our way to a 600-ship navy. We have 543 at present. We have - our military, the morale is high, I think the people should understand that two-thirds of the defense budget pays for pay and salary - or pay and pension. And then you add to that food and wardrobe and all the other things and you only have a small portion going for weapons. But I am determined that if ever our men are called on they should have the best that we can provide in the manner of tools and weapons. There has been reference to expensive spare parts, hammers costing $500. Well, we re the nes who found those.

I think we've given the American people back their spirit. I think there is an optimism in the land and a patriotism and I think that we're in a position once again to heed the words of Thomas Paine who said: "We have it in our power to begin the world over again."

MODERATOR: Thank you Mr. Reagan. Mr. Mondale, the closing words are now yours.

MONDALE: I want to thank the League of Women Voters and the city of Louisville for hosting this evening's debate. I want to thank President Reagan for agreeing to debate. He didn't have to and he did, and wa all appreciate it.

The president's favorite question is, "Are you better off?" Well, if you're wealthy, you're better off. If you're middle income, you're about where you were, and if you're of modest income, you're worse off. That's what the economist tell us. But is that really the question that should be asked. Isn't the real question, "Will we be better off? Will our children be better off? Are we building the future that this nation needs?"

I believe that if we ask those questions that bear ono ur future - to just congratulate ourselves but challenge us to solve those problems - you'll see that we need new leadership.

Are we better off with this arms race? Will we be better off if we start this star wars escalation into the heavens? Are we better off when we de-emphasize our values in human rights? Are we better off when we load our children with this fantastic debt? Would fathers and mothers feel proud of themselves if they loaded their children with debts like this nation is now, over a trillion dollrs, on the shoulders of our children? Can we be - say, really say, that we will be better off when we pull away from sort of that basic American instinct of decency and fairness?

I would rather lose a campaign about decency than win a campaign about self interest. I don't think this nation is composed of people who care only for themselves. And when we sought to assault Social Secrity and Medicare, as the record shows we did, I think that was mean spirited. When we terminated 400,000 desperate, hopeless, defenseless Americans who were on disability, confused and unable to defend themselves, and just lid them out on the street as we did for four years, I don't think that's what America is all about. America is a fair society, and it is not right that Vice President Bush pays less in taxes than the janitor who helps him. I believe there's fundamental fairness crying out that needs to be achieved in our tax system.

I believe that we will be better off if we protect this environment. And contrary to what the President says I think their record on the environment is inexcusable and often shameful. These laws re not being enforced, have not been enforced and the public health and the air and the water are paying the price. That's not fair for our future.

I think our future requires the President to lead us in an all-out search to advance our education, our learning and our science and training, because this world is more complex and we're being pressed harder all the time.

I believe in opening doors. We won the Olympics in part because we've had civil rights laws and the laws that prohibit discrimination against women. I have been for those efforts all my life. The President's record is quite different.

The question is our future. President Kennedy once said in response to similar arguments, we are great but we can be greater. We can be better if we face our future, rejoice in our strenghts, face our problems and by solving them build a better society for our children.

Thank you.

MODERATOR: Thank you Mr. Mondale, and thank you Mr. President, and our thanks to our panel members as well. And so we bring to a close this first of the League of Women Voters Presidential debate on Oct. 21 in Kansas City, Mo., and this Thursday night, Oct. 11, at 9 P.M. Eastern daylight time, Vice President Bush will debate Congresswoman Geraldine Ferraro in Philadelphia. And I hope that you will all watch once again; no matter what the format, these debates are very important. We all have an extremely vital decision to make. Once more gentlemen, our thanks, once more to you our thanks, and now this is Barbara Walters wishing you a good evening.